Bloomberg News

Woolworths Aims to Build $6.4 Billion Home-Improvement Unit, O’Brien Says

March 04, 2012

Woolworths Ltd. (WOW), Australia’s biggest retailer, aims to build its Masters home-improvement unit into a high-margin business within five years, Chief Executive Officer Grant O’Brien said.

“We believe we can build this business to be a A$6 billion ($6.4 billion) plus entity over the course of the next five or so years, and our focus is on delivering that,” O’Brien told the Australian Broadcasting Corp.’s “Inside Business” television program yesterday.

Woolworths opened the first Masters stores in September in partnership with Lowe’s Cos., the second-largest U.S. home improvement chain. The companies plan an Australian network of 150 outlets, seeking the higher profit margins enjoyed by Bunnings, a unit of Wesfarmers Ltd. (WES), to boost earnings.

“The historical levels of profit within these businesses are well known,” O’Brien said. “Our objective is to get into the same sort of area as those more mature businesses.”

Bunnings’ margin was more than 12 percent last year, based on earnings before interest and tax, and other companies are at similar levels, he said.

The home-improvement market is “fragmented” with the largest existing player holding about a 16 percent share, presenting opportunities for Woolworths, he said. The Sydney- based retailer owns two-thirds of the Masters venture while Mooresville, North Carolina-based Lowe’s has the rest.

Woolworths said on March 1 it had its first drop in profit since at least 2000 due to a charge against its Dick Smith consumer electronics unit.

Net income fell 17 percent to A$966.9 million ($1 billion) in the six months ended Jan. 1, from A$1.16 billion a year earlier. The retailer said it expects a “subdued” full year because of weak demand while sales of groceries and fuel, which generate 84 percent of revenue, may cushion the company from stalling sales of discretionary items such as clothing.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net


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